May Report

Market Review

Global equity markets advanced strongly in May, rising around 5%, with US equities narrowly outperforming their international counterparts. All major regions delivered positive returns, supported by the continued momentum of the artificial intelligence buildout and an easing of geopolitical tensions in the Middle East.

Information Technology was the standout sector by some margin, returning more than three times the broad market as investors maintained their enthusiasm for AI-related businesses. The recovery extended beyond hardware, with even the previously weaker software and services industry posting a sharp rebound, rising close to 16%. In contrast, Energy weakened as oil prices declined on improving prospects for a US-Iran agreement and expectations that the Strait of Hormuz would soon reopen, reversing some of the gains the sector had captured during the earlier conflict.

Regional performance was led by Emerging Markets, which rose nearly 10% as South Korea surged by more than a third on the strength of its memory chip manufacturers. The concentration of advanced semiconductor production in the region positioned these markets to benefit directly from the AI demand cycle.

Portfolio Commentary

The Fund rose 3.4% in May, underperforming the benchmark, which rose 5.1%. Underperformance, both for the month and the year to date, was concentrated in Information Technology, where a small group of stocks drove much of the market’s strength.

Of the 20 stocks responsible for 78% of the MSCI ACWI Index’s total return in May, 18 were in IT. The Fund owns seven of these, including ASML, the Dutch supplier of photolithography equipment to the semiconductor industry, and Samsung Electronics, the South Korean semiconductor and memory chip manufacturer. The absence of others from the portfolio, particularly memory chip makers Micron and SK Hynix, weighed on relative returns. By geography, the weakest contribution came from the US, where most of this IT-led concentration was felt.

Several financial holdings lagged during the month despite reporting positive results. Reinsurance Group of America, the global life and health reinsurer, and Progressive, the US auto insurer, both declined, as did Tradeweb Markets, the US-based electronic trading platform for fixed income and derivatives.

Elsewhere, Netflix declined for the third consecutive month after the company issued slightly lower-than-expected guidance for second-quarter growth. On the positive side, HEICO, the US-based aircraft parts manufacturer, reported strong revenue growth that was unaffected by the conflicts in the Middle East.

During the month, the Fund initiated a position in Kubota, one of the leading global suppliers of tractors and farming equipment. The team views Kubota’s competitive advantage as resting on its superior technology, with lightweight and compact designs that deliver excellent manoeuvrability and high energy efficiency, combined with an extensive dealer and service network across the US and Asia. The share price had been weighed down by US tariffs and slowing US growth through the first half of 2025. Kubota has committed to a turnaround plan focused on growing free cash flow by reducing certain financial incentives that have been a drag on returns, such as subsidised rates and extended payment terms, and reinvesting that cash into high-growth areas, including construction machinery and India. The team expects this plan to support stronger returns going forward.

Periods of narrow market leadership, while uncomfortable in the short term, are not unusual. The investment approach continues to focus on businesses with durable competitive advantages and the financial strength to navigate a range of economic conditions.